Recording Charging Liens Against Real Property: When, Not Whether

• Publication year: 2002
• Pages: 121

31 Colo.Law. 121 Colorado Lawyer 2002.

2002, October, Pg. 121. Recording Charging Liens Against Real Property: When, Not Whether

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121

Vol. 31, No. 10, Pg. 121

The Colorado Lawyer
October 2002
Vol. 31, No. 10 [Page 121]

Specialty Law Columns
Professional Conduct and Legal Ethics
Recording Charging Liens Against Real Property: When, Not Whether
by Alec Rothrock
C Alec Rothrock 2002; all rights reserved

This column is sponsored by the CBA Ethics Committee Articles published in this column do not necessarily reflect the views of the Committee and may be those only of the individual authors

Column Editor

Susan Bernhardt, Denver, of Netzorg, McKeever, Koclanes & Bernhardt LLP - (303) 864-1000

About TheAuthor:

This month's article was written by Alec Rothrock, Englewood, a shareholder with Burns Figa & Will, P.C. - (303) 796-2626, arothrock@burnsfigawill.com. The author thanks his law partner, Geoffrey P. Anderson, for his contributions to this article.

A version of this article first appeared in Trial Talk (June/July 2002). Reprinted with permission.

This article addresses circumstances in which an attorney may (and perhaps should) record a charging lien against a client's real property.

Next to the Rule in Shelley's Case1 and other hoary real property doctrines, one of the most arcane areas in the law has to be the law of charging liens. In January 2002, the Colorado Bar Association Ethics Committee issued Formal Opinion 110: Assertion of Attorney's Charging Lien and Taking Security Interest in Client Property to Protect Fees.2 Shortly thereafter, the Ethics Committee issued an Addendum to Opinion 110,3 which discusses the recent Colorado Court of Appeals case of In re Marriage of Mitchell.4 The Addendum also sets up, but leaves alone, an issue of law and not legal ethics: When, if ever, can an attorney record a charging lien against real property?

The question would be of only academic interest, except that in a 1992 case, People v. Smith,5 the Colorado Supreme Court disciplined a lawyer for recording a charging lien against a client's real property. For this and other conduct, the Court suspended the attorney for six months, finding that the attorney's recordation of a charging lien against the marital property in a divorce case "was not authorized by either [CRS] section 12-5-119 or 12-5-120."6 The Smith case rightly condemns an abusive practice, unfortunately still common in Colorado, only with an apparent sweep that the Court cannot have intended.

This article discusses the law of charging liens and concludes that when a charging lien attaches to real property, it is not only permissible but also desirable for attorneys to record them. The article also analyzes the Smith case and other cases relevant to the law of charging liens.

Nature of Charging Liens

In Colorado, there are two types of attorneys' liens: the retaining lien and the charging lien.7 Both are creatures of statute.8 Both are designed to secure the lawyer's compensation. The retaining lien gives the lawyer a lien on the client's papers in the attorney's possession (typically, the client file)9 or money in the adverse party's possession, such as settlement funds.10 The charging lien gives the lawyer a lien on, among other things, "any judgment [the attorney] may have obtained or assisted in obtaining, in whole or in part...."11

The charging lien is a right to "have [the attorney's] compensation or costs, or both, directly secured by the fruits of the judgment."12 In 1932, the Tenth Circuit Court of Appeals described it as "in the nature of an equitable lien... based on the natural equity that the plaintiff ought not to be allowed to appropriate the whole of a judgment in his favor without paying thereout for the services of his attorney in obtaining such judgment."13 (Citations omitted.)

Upon entry of judgment, a charging lien attaches automatically and the lawyer need do nothing more to enforce it against the client.14 To enforce the lien as against third parties, however, the lawyer must give notice.15 What type of notice is tricky. The charging lien statute states that for "judgments obtained in whole or in part" by the attorney, the attorney may file a notice of lien with the clerk of the court where the action is pending, setting forth the "agreement of compensation."16 The statute goes on to specify that this notice

shall be notice to all persons and to all parties, including the judgment creditor, to all persons in the case against whom a demand exists, and to all persons claiming by, through, or under any person having a demand in suit or having obtained a judgment that the attorney whose appearance is thus entered has a first lien on such demand in suit or on such judgment for the amount of his fees.17

Nonetheless, when the "fruits" of a judgment include real property, filing a notice of charging lien in the court file may not protect the priority of the lien as against nonparties to the action. In this respect, the charging lien statute, which applies to all forms of property, conflicts with the more specific recording statutes that apply only to real property. The purpose of the latter is to render titles to and interests in real property "secure and marketable," so that prospective purchasers and encumbrancers may "rely on the record title."18 Prospective purchasers and encumbrancers of real property awarded pursuant to a judgment may neither think to look in the court file for unrecorded notices of a charging lien affecting title nor are they required to do so.19

Charging Liens on
Real Property

The Colorado Supreme Court touched on this very problem eleven years after Colorado statehood, in the seminal case of Fillmore v. Wells.20...